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Tax Policy, Location Choices, and Market Structure

Gerard Pfann () and Hans van Kranenburg ()
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Hans van Kranenburg: Maastricht University

No 499, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: A structural model of entry and fiscal policy is presented. It shows that taxation of variable production costs can increase product prices, lower competition, and reduce the availability of new products in small markets. The model’s test is based on a unique nationwide fiscal experiment. We study the effects of the 1869 stamped paper tax reform act on the market for daily newspapers in the Netherlands. The econometric analysis uses data on when and where the newspapers existed and were introduced together with demographic census data from 1859 and 1869. The results confirm the model’s predictions and show how taxation affects strategic business location decisions.

Keywords: quasi-experiment; industrial organization; cities; fiscal policy (search for similar items in EconPapers)
JEL-codes: C41 D43 L13 L16 L82 (search for similar items in EconPapers)
Date: 2002-05
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Published in: Journal of Law and Economics, 2003, 46 (1), 61-84

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